In case you missed the headlines from yesterday:
- US Federal Reserve interest rate decision +75 bps vs +75 bps expected
- The full policy statement from the September 2022 FOMC meeting
- FOMC dot plot and central tendencies from September 2022 meeting
- Powell opening statement: The economy does not work for anyone without price stability
- Powell Q&A: My main message has not changed at all since Jackson Hole
- This is the the most-important Fed dot
A key communique from Powell was right before he addressed reporters for the Q&A session, in which he said that "my main message has not changed since Jackson Hole". And the Fed certainly backed that up with a more hawkish dot plots projection, even if Powell said that they don't necessarily represent "a plan or commitment".
It pretty much ticked all the boxes for a hawkish takeaway and though the dollar saw gains pull back for a bit with the long-end of the yield curve falling, we are seeing markets keep with a more consistent reaction as the dust settles. Meanwhile, equities were punished after a brief period of relief during Powell's press conference.
There is an argument so to speak that all of this could be interpreted as peak Fed hawkishness and that as Powell sees less likelihood for a soft landing, eventually a bigger shock to the economy could see the central bank pull back on tightening further. In other words, the Fed wants to get in as much as they can - as quickly as they can - in order to stop inflation before the idea of a Fed pivot starts to become more than just an afterthought.
For now though, there is no change to the narrative and with the Fed potentially looking for higher rates for longer - perhaps even beyond 4.75% - that is enough to keep the running theme in markets. With the dollar looking to push fresh upside legs against the euro, pound, loonie, aussie, and kiwi, it's tough to fight against the momentum and a break above 145.00 in USD/JPY will only serve to exacerbate the gains for the greenback.